No Penalty U/s. 271(1)(C) Of Income Tax Act Can Be Levied By Department On Mere Estimation Of Unaccounted Income: Madras HC

Relying on the Apex Court ruling in the case of Radheshyam Kejriwal v. State of West Bengal [(2011) 3 SCC 581], the Madras High Court quashed the criminal proceedings initiated against the Assessee by holding that when ITAT's findings on merits are in Assessee's favour, criminal prosecution on the same set of facts is not maintainable.

A Single Judge Bench of Justice V. Sivagnanam noted that the ITAT had allowed Assessee’s appeal by finding that there is no evidence that the Assessee made any cash payment which is unaccounted and the additions made by the Revenue are merely based on an estimate.

Accordingly, the Bench highlighted that penalty proceedings cannot be initiated in the present case.

Senior Advocate N.R. Elango appeared for the Assessee while the Revenue was represented by Special Public Prosecutor M. Sheela.

The brief facts of the case were that for the AY 2013-14, Revenue filed a complaint before the Additional Chief Metropolitan Magistrate (Economic Offences) for the offences under Sections 276C(1) and 277 of the Income Tax Act on the ground that the source of income for incurring cash expenses of Rs.1.19 Cr was not explained by the Assessee. Accordingly, the Revenue added it as an unexplained expenditure and also initiated penalty proceedings on the Assessee whereby a penalty of Rs.38.84 Lacs was levied under Section 271(1)(c). This penalty was confirmed by the CIT(A) whereas the ITAT held that though it may be a fit case for the addition but not for penalty under Section 271(1)(c) as the additions were made merely based on presumption from certain documents unearthed during the survey.

The Revenue Department argued that although ITAT allowed Assessee’s appeal challenging the penalty proceedings, separate criminal proceedings are still maintainable.

However, relying on the Apex Court ruling in J.Sekar v. Directorate of Enforcement [(2022) 7 SCC 370], the High Court rejected the argument of the Revenue Department and reiterated that if the allegations against the Assessee are found to be not sustainable on merits, the criminal prosecution on the same set of facts and circumstances cannot be allowed to continue.

Cause Title: TVH Energy Resources Pvt. Ltd v. Assistant Commissioner of Income Tax

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